Don’t Be The Luxury Retailer That Had To Close Due To Discounting

What once was exclusive and in high demand is now regularly discounted.

And brands aren’t too happy about it.

Burberry ousted their CEO last year and gave it to Marco Gobbetti because sales are projected to be their weakest since 2009.

Handbag maker Coach announced last year that they were cutting 25% of the outlets that carry their products.

Michael Kors said that comparable sales fell 6.9% during the holiday quarter of 2016 which was even worse than what the retailer had reported in the previous quarter. CEO John Idol said, "Discounting is creating confusion in the consumer's mind relative to the value of the Michael Kors brand when it's being seen so often on sale in so many different places.”

Ralph Lauren's revenue has declined year-over-year for seven straight quarters, and it expects its 2017 revenue to drop by "a low double-digit rate." Analysts expect its revenue and earnings to respectively fall 10% and 12% -indicating that investors can expect a lot of store closings and markdowns as the retailer desperately tries to win back shoppers.

Luxury watch sales in China have tumbled 30% which is causing a glut of product that brands are having to buy back.

What’s going on?

For the past twenty years, luxury brands were running head over heals to bring aspirational brands to the masses. Look no further than all the Mercedes Benz models.

But bringing massive amounts of product means there had better be massive demand.

There simply isn’t.

What once was unattainable, now is everywhere.

And then there are the Millennials…

Millennials are renting, not buying. She can rent the bag, the shoes, the dress, the jewels and never have to visit a store.

If she really wants to own a luxury product, she can go to an outlet store, a consignment store, buy it online from a discount house, or even just buy it from a friend.

Quite simply…buying new luxury isn’t fashionable.

On top of that China’s economy is not buying luxury at the rate they used to due to the government crackdown on gifting. Europe isn’t buying either due to terrorism fears and Brexit. Look to both to have soft demand for the foreseeable future.

And closer to home in America, with the unsettling nature of the presidential race still reverberating, while consumer sentiment is up, fewer are going to the malls.

Buying is a hopeful sign.

Worried people don’t buy.

The message in all of this: you can’t be both a luxury brand and be regularly discounting.

In Sum

Luxury brands are struggling to not be ubiquitous in the world, but at what price?

How does all this news about luxury purchases waning affect your luxury store?

If you can only make a sale by discounting, you do not have a luxury brand built on legions of craftspeople across the world, you have no sales process that engages and creates demand for the best, and your employees are just one step away from Let’s Make A Deal.

As luxury brands are finding out, Let’s Make A Deal isn’t where you want to be.

The only way to stay in business, whether you are a luxury brand or retailer, is to stay true to your brand heritage, do the hard work of retail sales training to engage today’s jaded consumer, and make the sale at full price.

Bob Phibbs

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